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the price of free leads to innovation

I just finished reading Free: The Future of a Radical Price by Chris Anderson. As usual, Anderson takes ideas that have been out there a while and packages them in an insightful and valuable way. I’m a bit late to the party, so there has already been plenty of reaction to the book. Much of the discussion has been spurred by Malcolm Gladwell’s piece about the book in the New Yorker, which is strongly critical of Anderson’s ideas. This brought a reply from Seth Godin, and Mitch Joel has summarised a lot of the main points (with links to everything) on his blog Six Pixels of Separation.

The book builds on the ideas that Stewart Brand articulated at the first Hackers’ Conference in 1984:

On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.

This quote often gets shortened to “Information wants to be free” – this is the bit that Gladwell quotes – and I think that the shortening is the source of a lot of the misdirected arguments against Anderson’s book. If you only say “Information wants to be free”, then the big question around free becomes how do content creators get paid? If you take this angle, then even talking about free as a concept is tantamount to advocating piracy – so a lot of the people upset with Free are, like Gladwell, professional content creators, wondering how they’ll get paid once information becomes free. Actually, even more than content creators, a lot of the kicking against free as a concept comes from content filterers (newspaper publishers and record companies, for example).

I think that the way around this problem is to think about the full quote from Brand, as Anderson actually does in the book. The tendency towards cheap/free content is inexorably driven by technological advances – it doesn’t really matter if we like it, or if we want it to happen – it’s just the way it is. The question then becomes ‘how do we structure a business model that includes some free content?’ While this can be a challenging question for incumbent businesses with business models that are difficult to change, it also provides significant opportunities for business model innovation.

And in fact, we have many, many examples of business models that include some part of the intellectual content being offered for free. Just think of the longest running, most successful open innovation project in history – science. Watson & Crick published the structure of DNA in Nature in 1953 – for free. Subsequently, the entire industry of biotechnology has been built on the foundation they provided, along with many other businesses. And even though Watson & Crick didn’t get paid by Nature for creating that short piece of content, they still ended up doing ok financially…

The key to making free work is to consider both parts of Brand’s idea about information – especially the first part. Information wants to be expensive, because it is extremely valuable when it is adapted and applied to specific contexts. If you are creating worthwhile content, the key is to figure out how to find the people that control those contexts, and build your business model around making money off of them. There are plenty of ways to do this – Anderson’s original article about Free in Wired links to a how-to wiki that lists 53 different business models that include free as part of the model, but which also include revenue-generating mechanisms. Making money off of free is a pure business model problem, and the people and firms that are innovative in constructing their business models are the ones that will profit from creating content in the information age. To do this, don’t just think about how information wants to be free, you must also consider how it wants to be expensive.

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9 thoughts on “the price of free leads to innovation”

One might argue that information is both free and expensive depending on the right context.
For instance, in Science (I am stereotyping here but bear with me) information wants to be free because information gets more valuable as it is more widely disseminated. For example, if I come up with a way to refute the second law of thermodynamics tomorrow and I keep it all to myself, this information is worthless. But if I disseminate it widely and it stands scrutiny, it becomes valuable and I win a Nobel prize.
On the other hand, if I invent a perpetual motion technology based on my new scientific discovery (which I kept secret), the information becomes very expensive because no one knows how I did it.
This, I think, gives a neat distinction between science and applied science (or technology). The tension arises when people want to have it both ways: disseminate knowledge widely and yet somehow privatise the benefits.

Marco, I agree with everything right up to your final conclusion. One of Anderson’s key points is that getting the ideas to spread widely and profiting from them don’t have to be mutually exclusive – but that the way to address this is to build a business model that does both. For example, you get the basic idea to spread quickly by making it free, but you profit from applying the ideas in specific contexts. To keep using the example of James Watson, the original publication was freely available (at least to scholars with good libraries!), but he made plenty of money from writing books, speaking engagements, and in grants to the Cold Spring Harbor Lab when he was Director there. Building these models is challenging, but that’s what makes it innovation!

That’s a good example Marco – and addressing that problem is one of the fundamental issues that people looking at innovation systems have been grappling with for a while… I just read this: “The Economist? Clay allows that the paywall might work in financial news because value comes from scarcity… but he points out that the Economist’s opinion pages are put outside the firewall so they can be amplified and have influence.” which is summarising a talk that Clay Shirky gave earlier this week, and I thought of our discussion here.

Tim,
I agree. But it seems that the money is made from an ability to “context switch” ideas (from academic to general public or to corporate) rather than from the ideas themselves. (But I suppose most forms of innovation are -really- context switching).
The particular example I had in mind is our local universities (rather than individual researchers) which are great at generating new knowledge but hopeless at making money out of it. The reason, I think, is that they lack a reliable mechanism that transfers knowledge from an academic context to a business context (which makes its innovation effort haphazard and accidental).